The dollar traded on the easier side as sentiment improved in Europe. EUR held firm over 1.3100, Cable was supported under 1.5450 and the commodity bloc currencies rallied. The turnaround in sentiment came after China's SSEC posted a late rebound. After losing more than 5% to move into bear market territory it cut losses to end 0.2% lower. PBoC deputy governor Ling said it would guide markets rates and would continue to manage liquidity appropriately to keep lending growth reasonable. After the PBoC comments, ECB's Coeure also said the ECB was a long way for a policy exit, which helped the market tone after yesterday's remarks from Fed's Fisher and Kocherlakota soothed market fears on policy tapering.

[EUR, USD]EUR-USD was mildy supportive as a moderate rally across European equity markets weighed on the dollar. EUR headed to 1.3150 on early interest from funds and fast money accounts. However, momentum was restrained by ECB's Coeure, who said that policy exit is still distant and monetary policy will remain accomodative. Coeure added that the ECB was technically ready for negative deposit rates. Currently, rangebound action looks more likely to continue, but if stocks add to gains into the N.Y. open then EUR could clear offers between 1.3160 and 1.3180.

[USD, JPY]USD-JPY broke to 96.95 lows as dollar selling triggered stops through 97.20 and 97.00. However, once filled good Japanese support emerged and macro funds reentered to the market amid expectations that USD-JPY will rest the Ichimoku cloud base just under 98.00. Failure to close above this region on Monday was a negative influence intra. However, USD-JPY bulls are still positioning for a close over 98.00, which would set up an eventual push back on the 100.00 region.

[GBP, USD]Cable found buying interest on dips, with the dollar trading at slightly softer levels, while EUR-GBP remained heavy after it corrected below 0.8500 on Monday. BoE comments to the Treasury Select Committee indicate that policy is more likely to remain on hold. BoE King said that it is premature to say we are at the beginning of the end and will soon need to raise interest rates, adding it would be folly to tighten policy now. BoE's Bean said a bank rate cut below zero was still an option and the MPC would keep it under review. However, Broadbent said he was more confidence of the BoE's forecast of accelerating growth and Dale said lending figures are less disappointing than many believe. There was no impact after the CBI distributive sales came in at 1 in June from -11 previously

[USD, CHF]EUR-CHF backed up over 1.2250 after it found very strong support into 1.2220 on Monday. The CHF had benefited from a flight to safety, which also capped the USD-CHF upside. However, EUR-CHF should meet long position building on dips ahead of the 200-dma around 1.2215, while the dollar pairing should hold up amid underlying dollar strength and positive technical indicators.

[USD, CAD]USD-CAD has backed away from 1.0520 in late Asia and posted moderate losses in Europe as sentiment improved. The pick up in European stocks fueled a USD-CAD move into 1.0460, though early positioning ahead of the North American open saw a pick up in dollar bids. USD-CAD drifted back over 1.0480 and could edge back towards 1.0500, where option positioning is noted today. Another deterioration in risk appetite could fuel a move on the next upside target at October 5, 2011 highs of 1.0572. Meanwhile, bids are layered to 1.0450 and 1.0430-40.